If the maximum lump sum of £144,060 was taken the annual pension would be reduced to £21,655 (£33,660 less £12,005). It is not necessary to take the maximum lump sum; it is possible to access any lump sum up to the maximum of 25% of the total pension value, by giving up a part of the annual pension as detailed above.

Is my lump sum always tax-free?

You are entitled to a tax-free lump sum equivalent to the lesser of:

25% of your pension fund value, or

25% of the lifetime allowance (whichever is the lesser).

Lump sum benefits up to this level are tax-free.

If you have a lump sum protection certificate (certified by HMRC) you will be able to access a greater tax-free lump sum than that specified above.

If you have fixed protection you are entitled to access 25% of your protected (fixed) lifetime allowance.

If you have enhanced or primary protection you are entitled to access 25% of £1.5m as your lump sum before any tax charges will apply.

Any lump sum which exceeds this limit would be subject to 55% lifetime allowance charge.

Is the lump sum likely to ever be taxed in future?

While we can’t predict what any Governments may announce in future, it is in the Government’s interest for people to take their pensions in a lump sum.

​If the Government were to decide to tax the lump sum, presumably fewer people would choose to access benefits in this way. With fewer people opting for lump sums, the scheme would retain a greater liability for paying ongoing pension benefits and would be more ‘expensive’ as a result of this.

Making another commutation choice

The option to exchange part of your pension for lump sum must be made at the time of claiming your pension. For that reason you will not have a second opportunity to make a decision about commutation even if a substitute award be made.

The approach taken by the NHS pensions agencies is:

if when claiming the pension you opted to take the maximum lump sum, the pensions agencies will apply that decision to all substitute awards

if when claiming the pension you opted to commute a fixed amount (or nothing at all), there will be no further commutation on the additional pension resulting from the substitute award.

If you change your mind, you will need to contact the relevant pensions agency quickly and certainly before they start processing your retirement benefits.